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SECOND
SECTION
CASE OF METALCO BT. v. HUNGARY
(Application
no. 34976/05)
JUDGMENT
STRASBOURG
1 February
2011
This
judgment will become final in the circumstances set out in Article 44
§ 2 of the Convention. It may be subject to editorial
revision.
In the case of Metalco Bt. v.
Hungary,
The
European Court of Human Rights (Second Section), sitting as a Chamber
composed of:
Françoise
Tulkens,
President,
Danutė
Jočienė,
Dragoljub
Popović,
András
Sajó,
Nona
Tsotsoria,
Kristina
Pardalos,
Guido
Raimondi,
judges,
and Stanley Naismith,
Section Registrar,
Having
deliberated in private on 11 January 2011,
Delivers
the following judgment, which was adopted on that date:
PROCEDURE
- The
case originated in an application (no. 34976/05) against the Republic
of Hungary lodged with the Court under Article 34 of the Convention
for the Protection of Human Rights and Fundamental Freedoms (“the
Convention”) by a Hungarian limited partnership, presently
under liquidation, Metalco Bt. “f. a.” (“the
applicant”), on 10 September 2005.
- The
applicant was represented by Mr J. Dobos, its owner and chief
executive officer. The Hungarian Government (“the Government”)
were represented by Mr L. Höltzl, Agent, Ministry of Public
Administration and Justice.
- The
applicant complained that its litigation with the Tax Authority
lasted an unreasonably long time, was unfair and resulted in the loss
of the value of its share held in another company. It relied on
Article 1 of Protocol No. 1 and Article 6 § 1 of the Convention.
- On
30 March 2009 the President of the Second Section decided to give
notice of the application to the Government. It was also decided to
rule on the admissibility and merits of the application at the same
time (Article 29 § 1).
THE FACTS
I. THE CIRCUMSTANCES OF THE CASE
- The
applicant is a limited partnership under liquidation, with its seat
in Pécs.
- In
1996 the Tax Authority established that the applicant owed some 10
million Hungarian forints (HUF) in outstanding taxes. To secure this
claim, on 10 April 1997 it attached a 100%-share the applicant
had in another company, which was nominally worth over HUF 103
million. Aware of the applicant's own intention to sell the share by
30 June 1997, the Tax Authority forbade the transaction but did not
proceed to auctioning it within the statutory two-month deadline or
afterwards.
- In
the ensuing two-year-long administrative procedure, the applicant's
tax debt was eventually cancelled and the asset unfrozen. However, by
that time the company in which the share belonged had been liquidated
– as of July 1997 – and the share had lost its value
altogether.
- Some
time in 1999 the applicant sued the Tax Authority for damages. On
12 December 2000 the Baranya County Regional Court awarded it
HUF 103 million. On 13 June 2002 the Supreme Court quashed this
decision. On 3 June 2003 the Regional Court again found for the
plaintiff.
- On
appeal, on 6 May 2004 the Pécs Court of Appeal reversed this
judgment and rejected the applicant's action. It held in essence that
there had been no causal link between the Tax Authority's unlawful
omission to hold an auction to sell the attached asset within two
months from its attachment, as required by section 116(1) of the
Enforcement Act 1994, and the damage the plaintiff had sustained. In
the court's view, the burden of proof to show that had there been a
timely auction the share could have successfully been sold to a buyer
with the requisite liquidity lay with the applicant. However, the
applicant could not prove this assertion. The court observed that the
buyer suggested by the applicant had never had, according to its
books, the capital needed for the acquisition; that the company in
which the share belonged had lost all its own capital by early 1997
and been in liquidation as of July 1997; and that its manager had
been convicted of fraudulent bankruptcy.
- On
16 March 2005 the Supreme Court dismissed the applicant's petition
for review. This decision was served on 22 April 2005. The
applicant's request for a re-opening was to no avail.
THE LAW
I. ALLEGED VIOLATION OF ARTICLE 1 OF PROTOCOL NO. 1
- The
applicant complained under Article 1 of Protocol No. 1 that the
procedure of the Hungarian authorities had resulted in the loss of
the value of its share held in another company, originally worth over
HUF 103 million.
Article
1 of Protocol No. 1 reads as follows:
“Every natural or legal person is entitled to the
peaceful enjoyment of his possessions. No one shall be deprived of
his possessions except in the public interest and subject to the
conditions provided for by law and by the general principles of
international law.
The preceding provisions shall not, however, in any way
impair the right of a State to enforce such laws as it deems
necessary to control the use of property in accordance with the
general interest or to secure the payment of taxes or other
contributions or penalties.”
- The
Government contested that argument.
A. Admissibility
- The
Court notes that this complaint is not manifestly ill-founded within
the meaning of Article 35 § 3 of the Convention. It further
notes that it is not inadmissible on any other grounds. It must
therefore be declared admissible.
B. Merits
- The
Government submitted that the interference with the applicant's right
to protection of property had been based on law and pursued the
general interest of securing the collection of outstanding tax debts.
It had moreover been necessary and proportionate in that the share
held by the applicant had been attached for want of other seizable
assets. In their view, the applicant had not been able to show that
the attachment, in its value, had significantly exceeded the amount
it had owed; therefore, the measure could not be regarded as
excessive.
- The
applicant submitted that the attachment of an asset worth over HUF
103 million could not be justified by the assertion of a tax debt of
HUF 10 million, especially since the latter was eventually cancelled
by the Tax Authority. In any event, the claim could have been secured
by seizing other assets or allowing the applicant payment in
instalments. Moreover, had the sale of the frozen share been
authorised or its auction executed by the Tax Authority as was
required by the law, the applicant could have recovered its value
which had however been entirely lost due to the Tax Authority's
unlawful omission. The measure was therefore unjustified and
disproportionate.
- The
Court reiterates that Article 1 of Protocol No. 1 guarantees in
substance the right of property. It comprises three distinct rules.
The first, which is expressed in the first sentence of the first
paragraph and is of a general nature, lays down the principle of
peaceful enjoyment of property. The second, in the second sentence of
the same paragraph, covers deprivation of possessions and makes it
subject to certain conditions. The third, contained in the second
paragraph, recognises that the Contracting States are entitled to
control the use of property in accordance with the general interest
or to secure the payment of taxes or other contributions or
penalties. However, the three rules are not “distinct” in
the sense of being unconnected: the second and third rules are
concerned with particular instances of interference with the right to
peaceful enjoyment of property and should therefore be construed in
the light of the general principle enunciated in the first rule
(Gasus Dosier- und Fördertechnik GmbH v. the Netherlands,
23 February 1995, § 55, Series A no. 306 B). Those forms of
interference must comply with the principle of lawfulness and pursue
a legitimate aim by means reasonably proportionate to the aim sought
to be realised (Bäck v. Finland, no. 37598/97, § 52,
ECHR 2004 VIII).
- In
the present case, the Court observes that the Tax Authority attached
the share held by the applicant in order to secure a tax debt. It is
satisfied that the measure thus aimed at securing the payment of
taxes, for the purposes of the second paragraph of Article 1 (see
Gasus Dosier- und Fördertechnik, cited above, § 66
in fine). However, such an interference will mean a violation
of that Article unless it is lawful and reasonably proportionate to
the aim sought. The Court does not consider it necessary to examine
whether or not the measure was proportionate in quantitative terms,
because in any event it constituted a violation of the principle of
lawfulness for the following reasons. The Court observes the Court of
Appeal's position that the Tax Authority had been under a statutory
obligation to hold an auction in order to sell the attached asset
within two months from its attachment (see paragraph 9 above). For
the Court, this obligation formed an integral part of the lawfulness
of the interference in question, equally serving the interests of
debtor and creditor. However, according to the findings of the
domestic courts, the sale required under the law never took place,
and this amounted to an unlawful omission on the part of the State,
for which the latter's tort liability was not established only
because the damage sustained could not be proven (see also paragraph
24 below). It follows that the continued seizure after that period
cannot be considered lawful.
- The
foregoing considerations are sufficient to enable the Court to
conclude that there has been a violation of Article 1 of Protocol No.
1.
II. ALLEGED VIOLATION OF ARTICLE 6 § 1 OF THE
CONVENTION (FAIRNESS OF THE PROCEEDINGS)
- The
applicant also complained that the subsequent civil proceedings were
unfair in that it had been required to prove an element impossible in
the circumstances, namely that had an auction taken place, there
would have been a solvent buyer to purchase the business share in
question. It relied on Article 6 § 1 of the Convention which
provides as relevant:
“In the determination of his civil rights and
obligations ... everyone is entitled to a fair ... hearing within a
reasonable time... by [a] ... tribunal ...”
- The
Government contested that argument.
A. Admissibility
- The
Court notes that this complaint is not manifestly ill-founded within
the meaning of Article 35 § 3 of the Convention. It further
notes that it is not inadmissible on any other grounds. It must
therefore be declared admissible.
B. Merits
- The
Government submitted that, in civil proceedings generally, the onus
to prove a certain fact lay with that party in whose interest it was
that the court should accept it as true. The applicant had brought an
action alleging that a business share held by it, worth HUF 103
million, had lost its value as a result of an unlawful omission on
the part of the Tax Authority. The Court of Appeal could not be said
to have violated the applicant's right to a fair hearing since it had
had good reasons for ordering the applicant to prove the amount of
the purchase price which it could have obtained for the share had it
been sold within or outside the enforcement procedure. It was
doubtful whether under Hungarian market circumstances a business
share purchased for HUF 32 million in 1993 could have been sold at a
price three times higher when no meantime investment or equity raise
had been put in place. It could be presumed that even if the share
had not been attached in the tax procedure, no potential buyer would
have been willing to pay over HUF 103 million at a time when the
financial situation of the company in which the share had belonged
had significantly worsened. Therefore it could not be argued that the
loss of the value of the share in question had been a direct
consequence of tax enforcement.
- The
applicant argued that to require it to prove the improvable –
namely that had there been an auction a solvent buyer would have come
forth – amounted to genuine unfairness on the part of the
domestic courts.
- The
Court notes that the Court of Appeal held that the burden of proof
was on the applicant to show that in an auction the attached share
could have been sold, and if so, then at which price. It agrees with
the Government in that generally it is not unfair to require a party
to civil litigation to prove a fact which that party wishes to rely
on. However, in the Court's view, in the instant case the mechanical
application of this principle led to the non-respect of “equality
of arms”, inherent in the notion of fair trial within the
meaning of Article 6 § 1. In the Court's view, it was precisely
the respondent Tax Authority's own unlawful omission to hold an
auction (see paragraphs 9 and 17 above) that prevented the applicant
from ascertaining and proving the value of the attached share. The
Court cannot speculate about the actual market value of the share at
issue or the chances of selling it to a solvent buyer in the face of
the financial difficulties experienced by the company in which it
belonged. It is satisfied with observing that due to an unlawful
omission on the part of the respondent authority the applicant was
demanded to prove a hypothetical fact. For the Court, the frustration
of the applicant's claims in this manner cannot, as a matter of fair
trial, be endorsed. It follows that there has been a violation of
Article 6 § 1 of the Convention.
III. ALLEGED VIOLATION OF ARTICLE 6 § 1 OF THE
CONVENTION (LENGTH OF THE PROCEEDINGS)
- The
applicant further complained that the proceedings had lasted an
unreasonably long time. The Government contested that argument.
- The
Court notes that the litigation started some time in 1999 and ended
in April 2005. It therefore lasted approximately six years for three
court instances.
- The
Court notes that this complaint is not manifestly ill-founded within
the meaning of Article 35 § 3 of the Convention. It further
notes that it is not inadmissible on any other grounds. It must
therefore be declared admissible.
- Having
regard to its findings in respect of Article 6 § 1 of the
Convention (see paragraph 24 above), the Court considers that it is
not necessary to examine this complaint separately.
IV. APPLICATION OF ARTICLE 41 OF THE CONVENTION
- Article 41 of the Convention provides:
“If the Court finds that there has been a
violation of the Convention or the Protocols thereto, and if the
internal law of the High Contracting Party concerned allows only
partial reparation to be made, the Court shall, if necessary, afford
just satisfaction to the injured party.”
A. Damage
- The
applicant claimed altogether 224,000 euros (EUR) plus accrued
interests in respect of non-pecuniary damage sustained because its
rights under Article 6 § 1 of the Convention were violated.
Moreover, it claimed EUR 385,000 plus accrued interests in respect of
pecuniary damage because its rights under Article 1 of Protocol No. 1
were violated. The latter amount should correspond to the value of
the share which became worthless, i.e. HUF 103,080,000.
- The
Government contested these claims.
- The
Court considers it appropriate to award, on an equitable basis, EUR
50,000 to the applicant under all heads.
B. Costs and expenses
- The
applicant made no costs claim.
C. Default interest
- The
Court considers it appropriate that the default interest should be
based on the marginal lending rate of the European Central Bank, to
which should be added three percentage points.
FOR THESE REASONS, THE COURT UNANIMOUSLY
- Declares the application admissible;
- Holds that there has been a violation of Article
1 of Protocol No. 1 to the Convention;
- Holds that there has been a violation of Article
6 § 1 of the Convention on account of the unfairness of the
proceedings;
- Holds that it is not necessary to examine the
applicant's complaint about the length of the proceedings separately;
- Holds
(a) that
the respondent State is to pay the applicant, within three months
from the date on which the judgment becomes final in accordance with
Article 44 § 2 of the Convention, EUR 50,000
(fifty thousand euros), plus any tax that may be chargeable, in
respect of pecuniary and non-pecuniary damage, to be converted into
Hungarian forints at the rate applicable at the date of settlement;
(b) that
from the expiry of the above-mentioned three months until settlement
simple interest shall be payable on the above amount at a rate equal
to the marginal lending rate of the European Central Bank during the
default period plus three percentage points;
- Dismisses the remainder of the applicant's claim
for just satisfaction.
Done in English, and notified in writing on 1 February 2011, pursuant
to Rule 77 §§ 2 and 3 of the Rules of Court.
Stanley Naismith Françoise Tulkens
Registrar President
